Compact Success Small Car Sales Boom in Germany amid Automaker Crisis

Even as carmakers around the world suffer amid the global economic downturn, some manufacturers are seeing record sales in Germany. Berlin's "scrapping bonus" is paying off.

Bailout, of course, has already become the word of the year. And these days, with the global automobile industry sinking into crisis, it has been used more than ever. The European Union is looking at ways to help out carmakers in the bloc, Washington has spent weeks trying to shore up the Big Three, and even China has recently announced plans to streamline its automobile industry as part of a large stimulus package for vehicle manufacturers.

Germans have been turning in old cars to be scrapped at record rates this winter.
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Germans have been turning in old cars to be scrapped at record rates this winter.

In Germany, though, the car-related headlines have been of an entirely different nature. A number of brands have experienced record sales so far in 2009. According to media reports Thursday, Volkswagen expects February sales to reach 120,000 cars, more than ever before. Opel, which is struggling to survive as its parent company GM sinks further into economic woes, experienced its best month in five years this February, selling 40,000 cars. And the Romanian auto manufacturer Dacia has even had to boost production lately to keep up with high demand in Germany.

The reason isn't difficult to find. Included in Germany's €50 billion ($64 billion) stimulus package, which finally cleared the last legislative hurdle last week, is the so-called "scrapping bonus." The measure hands Germans €2,500 to junk their old cars -- provided they immediately buy a new one. And even before the provision became law, tens of thousands of Germans began storming their local automobile dealerships.

"There has never been a state promotion that has had such a positive effect as the scrapping bonus," Robert Rademacher, president of the German Association for Motor Trade and Repairs, told the industry journal Auto, Motor und Sport this week.

His euphoria is echoed by Patrick Pélata, chief operating officer of Dacia parent Renault. "The scrapping bonus in Germany has led to an extreme boost," he told the Financial Times Deutschland. "Orders have jumped six-fold."

Still, it is unclear whether the measure can provide long term help to the German and European automobile industries. Most of the cars being sold as a result of the bonus are smaller, cheaper models like the VW Polo, Dacia Sandero or Opel Corsa. Indeed, because of the demand for compact cars, some buyers have been put on a waiting list and may have to wait months before they get their new car. Furthermore, the program is currently capped at €1.5 billion, enough for 600,000 people to take advantage. By the time the measure passed in the upper house of Germany's parliament last week, almost a quarter million Germans had already lined up in anticipation.

Meanwhile, sales of larger cars in Germany have dropped through the floor. Signature brands such as Mercedes, Porsche, BMW and Audi are all suffering. Sales of high-end sedans plummeted by 48 percent in January relative to the same month a year before. Because of higher profit margins on such models, the downturn is doubly dangerous.

The European Commission on Wednesday said it would not be presenting a Europe-wide plan to save the continent's car industry. "I do not believe for one moment that any government can be a better car manufacturer than those that we have already," said Enterprise and Industry Commissioner Günter Verheugen.

At the same time though, the Commission is taking a look at car industry support plans presented by France, Spain, Britain, Italy, Sweden and Germany. According to media reports, France has dropped a clause in its plan that would have requested that Renault and Peugeot close down factories outside of France before shuttering plants inside the country. The protectionist clause had come under intense criticism from the European Union.

In total, new automobile registrations in January of this year in the European Union were down 27 percent against the same period last year.

cgh -- with wire reports


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